The Trends In Globalization Economics Essay
Globalization is a process of connection between the people, companies and governments from different countries. It is a process of international trade, financial market and technological development in the world. It influences the environment, political principle, economy, personal perspective and values, and culture. Technological advances and mass transportation lead people to get closer, travel more frequently and increase international cooperation that gives more opportunities to investors and businesses to expand their global markets. Thomas Friedman described in the video that personal computers and internet are the important drive to globalization. Internet performs as a tool to connect people from different nations. The need for travel is decreasing because of growing use of real-time conferences and online tools on the Internet.
Globalisation gives opportunities that more organisations expand their businesses in competitive market. They can spend less operating costs and produce the variety of products and services by using diversification of resources. It effectively reduces the cause of organizational risk and interest payments in different situations. Deregulation is a major factor to boost competition and maintain a free trade. When government and industry associations deregulate the particular rules, companies can find better providers and offer cheaper and better quality of products for customers. In addition, comparative advantage leads the economic growth and does a lot of trade together, so both countries can produce goods efficiently, increase profits and satisfy the demand of goods for numbers of people.
Globalisation helps developing countries to develop their economy and improve their standard of living. International organisations set up companies and factories which create a lot of job opportunities for the poor in developing nations.
Thomas Friedman said that companies go global for markets and labour. Now the change is that globalisation is led by individuals. Individuals can move to another countries as well as use Internet to receive and send information.
Identifying Forces Driving Globalization
According to the publication from United Nations ESCAP, globalisation is defined as the culture which influences economy and business in the world. It is the motive force which increases the cooperation and communication across different countries. Economists assume that globalisation leads to develop the global market. Historians see globalisation is dominated by global capitalism. Sociologists believe that global movement of people, goods, and ideas change lifestyle and social values of everyone in the society. For the political scientist, they say that state sovereignty is eventually taken away by the globalization. There are some driving forces which accelerate the integration of regions and nations through economic development.
International trade had become the significant drive of globalization after the Second World War. Protectionism was introduced during this period. Government restricted the international trade in order to protect local farmers and businesses from external competition. It consisted of import tariffs, quotas, subsidies or tax reduction to local enterprises and state intervention until liberalization was emerged.
World Trade Organization drives global economic integration and promotes world peace more deeply. World Trade Organization was established by the member states in 1995. The aim is to discuss trade agreements, settle trade disputes and comply with trade rules. It helps open the global free trade as well as protect all members in trade environment. GATT is a multilateral agreement which eliminates the trade barriers and reduces tariffs among member states.
Capitalism was also introduced in Western world in 19th and 20th centuries. It is a current economic system which everyone can enter the market and provide goods and services. Through the selling process, they can either lose money or gain profits. Capital and assets are owned by entrepreneurs. Government has no right to control the flow of market.
The free market increases the frequency of international trade. Companies from developed countries offer resources and capital to developing countries in order to help them improve their poverty and boost their economy. It is also called foreign direct investment which means companies invest through buying a company, a merger or an acquisition of the company in another country. A lot of companies outsource the production. They cooperate with suppliers under the contract. Then suppliers hire labour to produce goods such as electronics, automobiles, textiles and garments in factories which avoid the high production costs, taxes, labor costs and utilities for companies. The risk of failure will be decreased in results of suppliers train labor equipped with specialized skills.
Companies engage in new technology, goods and services. International production networks have emerged in the global market from the US since the 1960s. It was rapidly developed especially in East and Southeast Asia. Because of numerous multinational corporations faced high labor costs and import products increase while they had to provide cheap products against other competitors, MNCs has started to adopt outsourcing which forms global supply chains in Asia. They set up different regional offices and factories in a few of Asian countries. Developing countries in Asia rely on technologies from Japan, The US and EU countries for production. China, a global assembly centre, is the leading country in international production networks. And China exports the most in the world as well.
In addition, ASEAN was created by countries in Southeast Asia since 1967. The aim is to increase the economic growth and achieve the free trade agreements with neighborhood countries. Recently, the economic crisis affects ASEAN that the foreign direct investment is decreasing in some Asian countries. According to ASEAN Secretary-General Surin Pitsuwan (The Jakarta Post, August 10, 2011, “Global debt crisis to affect ASEAN”, P.1), a lot of investors are from European Union, which comprises 22% of total foreign direct investments. ASEAN needs to keep their motivation and strengths.
It is impossible to open the international market without information technology, which has been rapidly improving the communication between people in the world. Internet and telecommunications are beneficial to the trade and financial industries. Companies enable to contact customers from different countries immediately and do transactions accurately. People can receive the knowledge and new ideas coming from other nations and also influence other people to make progress in different aspects. Using Internet is beneficial to companies that they can save time and cost. They also offer 24 hours services and online payment, reach their customers instantly and track products accurately. People can use mobile phone to make long-distance calls via the satellite technology and use Internet by accessing broadband data connection. Nowadays, these technologies are commonly used in businesses.
Transport is indispensable to boost the global market. Different means of transport can be used for delivering. In order to facilitate the development of logistics, people had invented large ships which contain very large capacities. It helps increase economic efficiency.
Countries link closer by roads and highways. Compared to the earliest time, people went on an expedition and rode horses to other nations for trading. They can use cars and trucks to arrive different places now.
Air freight has become the essential transport mode. It saves time and minimizes the damage and risk. For example, flowers, vegetables, meats, frozen food and some computer parts must export to other countries by plane. According to Boeing (Boeing, n.d. , “World Air Cargo Forecast”, P.1), air freight is widely used but it slowly grows due to the economic crisis and high fuel prices. People change to use more vehicles and ships which can reduce fuel costs. Using air transport influences by different factors such as exchange rates, air service agreements and other restrictions for the importing countries.
However, ship transport is still the most major transport for delivering abroad. Since industrialization developed especially in Asia in the 1980s, using the ship transport has increased significantly. Boeing stated that it carried 8.8 billon tonnes while air freight had only 43 million tonnes in the world in 2011. The maritime transport is mostly used for bulk items such as oil and grains, and most dry products go for air transport.
As shown, we see that these five driving forces have deeply affected the globalisation. Global trade boosts the development in finance, communication and transport. At the same time, they help the trade easier and gain more opportunities in businesses. Internet and telecommunications are modern technologies which allow connecting between suppliers, retailers and customers from different nations in results of the productivity and sales increase. Innovative technology and human skills improve gradually, so that people have better lives than the old times.
Identifying Different Responses to Globalization
According to the report from European Foundation for the Improvement of Living and Working Conditions, globalisation is related to European integration. Economic integration has been growing in the European Union since the enlargement of EU and the single market was created. Now the EU has 27 member states, which expands the economic development and increases the cooperation between Western Europe and Eastern Europe. As a result, both eventually improve the poverty especially in Eastern Europe, increase GDP and create more business and job opportunities. Nevertheless, economic integration causes some companies lose places in the competitive market. This part will be analyzed responses of globalisation among member states, institutions and individuals.
Eurobarometer has investigated public views over globalization in 15 member states between 2003 and 2006. In 2003, 63% of interviewees from member states said that they approved the development of globalization while 29% of them opposed it. In 2006, only 42% of people thought that the globalization had positive impact and 44% of those believed that it had negative one. It seemed the fact that perspectives over globalization were more negative. In addition, another survey showed that more people who thought globalization intervened in the market share and job opportunities for companies. The main concerns were some employers lost jobs to those from low-income European countries and had more mergers and acquisitions of local companies. For example, most of the people in Poland believed that globalisation led their country to open borders and encourage numbers of migrations. However, young people still worried about the high unemployment rate.
Employer’ responses to globalisation
Many private organisations have optimistic attitudes towards globalization. They think that policy measures help maintain the competitiveness such as tax reduction and labour law. Looking into a few of countries, employer organisations have different responses.
The Confederation of British Industry says that domestic companies gain more profits via exporting to fast-growing countries. Reform and low-cost production are their long-term strategies for business.
In the Netherlands, the Confederation of Netherlands Industry and Employers says that a good business environment is necessary for globalisation including the balance of labour market and salaries. The division of labour is also essential which means production industry needs employees equipped with specialised skills and high value-added work needs professional workers who have more creative ideas.
In Finland, the Confederation of Finnish Industries explains that the impact of globalization comes from the way that private enterprises and government react. Companies gain profits from enhancing their competitiveness in the foreign market, also they help increase the GDP of developing countries in results of growing the demand for their Finnish goods or services.
The General Confederation of Italian Industry states that local companies rely on the international market. Government engages in encouraging them to develop exports and promote their products in overseas. Increasing the competitiveness needs government and private enterprises to conduct internal procedures rapidly, improve the infrastructure and minimize costs.
Trade unions’ responses to globalization
Trade unions agree that globalisation is the existence of process. They concern that it will worsen the social values and working conditions. Therefore, trade unions monitor based on social policies and communicate with European Works Councils. There are a few examples of different countries.
Trade unions in Belgium insist that Europeanization is connected to globalisation. They promote the equality and solidarity. In 2007, they asked the government to conduct social and economic policies at European level. They also purposed to increase more professional jobs and continued expanding the market at global level. However, globalization has bad effects on privatization.
In Germany, trade unions say that globalization brings the economic growth and employment opportunities. Some companies find the assistance from trade unions due to problems of relocation abroad. Regarding to similar situations, trade unions would look up the international labour guidelines and other agreements. They will also contact with European and global works councils. Government should set up R&D while companies should improve the quality of products, strengthen the training for the staff and commit to innovation.
In Austria, trade unions express that the large companies should build the head offices in its own country because the economic growth does not only involve in the relocation in target countries, effects of supplier industries and other services should be taken into account. For example, trade unions purposed the government to avoid the relocation abroad and have mergers and acquisitions by foreign enterprises.
Institutional responses to globalization
Government enforces policies to resolve impacts on globalisation including relocation and foreign companies take over the local ones. Both damage domestic market and cause further consequences.
Government intervenes in the relocation appropriately in order to reduce serious effects which occur in the country. It encourages domestic companies to invest the production in its country such as using political pressure, subsidizing the cost of production and making mutual agreements. Government also creates good business environment for local companies including accelerating administrative procedures, offering tax reduction and boosting foreign countries to invest in its country. The backup support is important, particularly giving financial assistance to unemployed workers and providing job opportunities for them.
There are some examples of government prevents the relocation abroad. In Sweden, Saab, an automobile company, decided to relocate its production from Western Sweden to Germany. Government agreed on offering 10 million euros fund to Saab. Afterwards, the fund was used to develop R&D research, which improved car technologies, convinced Saab successfully to locate the production in the country and prevented to cut the workforce.
A lot of local and foreign companies left their businesses in Malta and relocated them in developing countries such as Bulgaria, Romania and China. It was hardly convince them to keep the production due to higher labor costs in its country. Government did not intervene in it instead of encouraging foreign investors started up the high value-added industries. However, Denim Services, a local clothing company, decided to relocate its production. Then the government helped search an investor for Denim Services but it was not successful, in turn 1,200 staff lost jobs.
As shown, we understand that globalization influences the EU’s economy in positive and negative ways. Some employers, trade unions and governments express their concerns and others welcome the foreign direct investments. Each stakeholder should reach when globalization has serious damage on its economic development.
Current Trends in Globalization
According to the report from World Trade Organisation, international trade began after Second World War. Then it grew slowly because of the inflation and high fuel prices. In order to rebuild the market, the US executed the program called The Marshall Plan. They offered $13 billion to help create economic integration and eliminate trade conflicts in Europe. According to Herman Van der Wee (Robin Hogg and Max R. Hall, 1986, “Prosperity and Upheaval: The World Economy”, P.44), "It gave a new impetus to reconstruction in Western Europe and made a decisive contribution to the renewal of the transport system, the modernization of industrial and agricultural equipment, the resumption of normal production, the raising of productivity, and the facilitating of intra-European trade." Afterwards, the US appeared the currency crisis. In 1971, they halted the link between dollar and gold which was known as the Bretton Woods system”. It helped stabilize the economy. The US also started adopting floating exchange system.
Because of the developing countries faced high interest rates and a big hit in debts in the 1980s, the foreign direct investment had been introduced.
International trade could be divided into three groups. The first group was West European countries were in favour of the liberalization of market and they obeyed GATT and capitalism. The second group was the Soviet Union, Eastern bloc and China advocated the trading system under communism which meant all companies were owned by the state. The last group was developing countries called for political independence from 1946 to 1962, but government still intervened in the market in order to protect local enterprises. As a result, the developing countries in last group enabled to expand more trades than the first two groups. Afterwards, East Asian countries abolished the third trading system because the economy had improved and international trade grew significantly.
As the following table, it shows that the trade had a high growth at 8.2% between 1950 and 1973 after the end of Second World War due to the value of money rose. During this period, European integration increased the trade between different countries more frequently. The innovative technologies developed rapidly which increased opportunities to expand exports. Japan developed the ship industry successfully followed by Asian Newly Industrialized Economies grew in the economic development, namely Taiwan, Hong Kong, South Korea, China, Thailand and Singapore and Malaysia. They mainly exported textiles, electronics and computer products. Then the trade in Japan went down and it was gradually replaced by NIEs and China. Nowadays China dominates the export market, mainly relies on the production of goods.
The US started the international trade in the 1950s. They developed automobile industry together with Canada and signed mutual agreements in 1965. Unfortunately, the exchange rates were not stable for exports causing many companies lost profits. Exporting oil to Middle East also lost a lot of money. In 1993, they created North American Free Trade Agreement, but it failed to resolve the downfall of exports. However, Soviet Union, Western Europe, North America and Japan comprised with 70% of world trade while 80% of it was from NIEs in 1993.
In industrial countries, the demand for agricultural products increased from 40% in 1955 to 60% in 2006. On the other hand, the need for fuels and mining products slightly decreased by 10% in 1955 and 2006. In the developing countries, clothing and textiles grew to about 68% and 55% respectively between 1983 and 2006. Office and telecom equipment was one of the major export products, which continued increasing to nearly 53%. On the contrary, the demand for automobile products remained at the bottom. Therefore, developing countries supply about two-thirds of clothing products to other countries while about one-half goes for textiles and office and telecom equipment.
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